Merkel ‘regrets’ rejection of Portugal austerity plan

German Chancellor Angela Merkel expressed her regret Thursday that Portugal’s parliament had rejected Prime Minister Jose Socrates’s “courageous” austerity programme, prompting his resignation.

“In order to deal with the challenges we face, what is needed is a consistent path of (budgetary) consolidation and reform … Yesterday showed how difficult this is,” Merkel told the German parliament.

“It is regrettable that a parliamentary majority was not possible,” she said in a speech before heading to a European Union summit in Brussels, calling Socrates’s austerity efforts “correct and courageous.”

“This shows how much political courage is needed.”

All five opposition parties voted Wednesday against the government’s fourth cost-cutting plan in a year, increasing the chances that Portugal will follow Greece and Ireland in requiring a bailout worth billions of euros (dollars).

EU leaders plan to replace an emergency bailout fund in 2013 with a permanent war chest underpinned by stringent budgetary discipline and closer cooperation in economic policy among the 17 nations sharing the euro.

Merkel also confirmed that she would press at the summit for Berlin’s contribution to the 80-billion-euro ($113-billion) cash element of the new 700-billion-euro permanent bailout fund from 2013 to be staggered over five years.

Originally, Germany was to provide half of its 22-billion-euro portion in 2013 and the rest in three installments over three years, but now Merkel wants to pay five chunks of 4.4 billion euros over five years.

“In the talks I intend to press for the contributions being made over five years,” she said.

This has drawn criticism, for example from Jean-Claude Juncker, Luxembourg’s prime minister and head of the Eurogroup, who said that delaying payments could rob the rescue fund of its top AAA credit rating.

The remainder of the rescue fund consists of loan guarantees.

“What we are doing with this package is drawing the lessons from the debt crisis,” she said.

“It is important to say that everything that we are doing now is on the one hand dealing with the mistakes from the past … and on the other we are creating a framework to ensure the mistakes of the past are not repeated.

She added: “The basic principle for me … is that no country in Europe will be abandoned or left to fall, because Europe only succeeds when we are one.”